China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum.
At a standing-room only session focusing on the world’s fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn’t whether to devalue the yuan but “to limit it from the U.S. dollar.”
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“The U.S. dollar is no longer – in our opinion is no longer – (seen) as a stable currency, and is devaluating all the time, and that’s putting troubles all the time,” Fan said, speaking in English.
“So the real issue is how to change the regime from a U.S. dollar pegging … to a more manageable … reference … say Euros, yen, dollars – those kind of more diversified systems,” he said.
With that kind of talk, it doesn’t appear the dollar will be making major upward headway any time soon. Which should help reduce America’s trade deficit. But if foreign investors reach a breaking point with the dollar and put the breaks on financing U.S. debt, it won’t be pretty for the economy.
I have been watching some of the webcasts of the World Economic Forum and they have been very informative. I personally liked the brief webcast on “Does Business Have a Noble Value?”. I like the opening comments by Stephen Roach of Morgan Stanley. I didn’t really like what he had to say, as I agreed with his analysis of the United States, but that is reality – sometimes the truth hurts. Interesting also was the survey as to would today’s world leaders take responsibility for making tough choices on these issues. 43% said low confidence, 18% said very low confidence. 34% moderate confidence. 4% high confidence. 1% very confident.
Anyway, I encourage you guys to view the webcasts if you get a chance.